21 August 2019: Nithia Capital, a UK-based alternative investment manager that specialises in turning around underperforming facilities, has identified around 15 stressed steel assets in India for acquisition.

While Nithia has zeroed in on about 15 assets, it is not planning to acquire all of them. Although they are all stressed assets, not all are in the National Company Law Tribunal (NCLT) for debt resolution. The total enterprise valuation that Nithia is looking at is $1-$1.2 billion as part of its India plan.

The assets are small and based in central and eastern India. “The idea is to create a platform of 3-3.5 million tonne of steel capacity and then grow organically and complete the half-finished capex. In 4-5 years, we plan to exit through an initial public offering or a strategic sale,” said Jai Saraf, founder and CEO.

In India, Nithia has an arrangement with CarVal Investors, founded by Cargill.

“CarVal is our preferred financial partner. We have to offer all our steel assets to CarVal first for participation. If they don’t join, we can partner with other financial investors,” Saraf said.

The CarVal consortium, of which Nithia is a part, had bid for Uttam Galva Metallics, which was on the RBI’s second list of non-performing assets (NPAs) for debt resolution under the Insolvency and Bankruptcy Code (IBC).

Lenders had selected the CarVal-led consortium as the preferred bidder, but SSG Capital, the other bidder in the fray, challenged the lenders’ decision in NCLT. “The hearing is over and the matter has been reserved for order,” said Saraf.

If the Uttam bid finally goes in favour of the CarVal consortium, it would be Nithia’s first exposure in India.

Nithia Capital had also looked at major assets like Essar Steel, Bhushan Steel and Monnet Ispat & Energy before they were put up for debt resolution at the NCLT. However, after major steel players evinced interest, Nithia changed tack and started focusing on smaller assets.

“The big assets were then going through the CDR and SDR mechanism. But neither the banks were keen on taking a haircut nor the promoters wanted to cede control. So it was a frustrating 12-14 months,” said Saraf.

This prompted Nithia to reconfigure its strategy. “We started looking at assets below a million tonne capacity which were not on the radar of big players,” explained Saraf.

The IBC, according to Saraf, is once in a lifetime opportunity to buy assets at a fair value and less than replacement cost. “It is far from perfect, but is evolving very fast,” he said.

The steel industry has been under pressure globally on account of demand worries, but Saraf said that it would not deter Nithia from investing in the sector. “Steel is a cyclical industry,” he pointed out.